Opportunity Zones and Census Data: Understanding New Guidance from the Treasury
The growing awareness of the Opportunity Zones Program has left many with questions regarding geographic eligibility for designation as Opportunity Zones. This post provides additional details regarding the use of census data to determine census tract eligibility criteria. This information is based on our current understanding of the legislation as of the IRS guidance on February 8, 2018 and will be updated to reflect future guidance from the U.S. Department of the Treasury.
In addition to this post, be sure to check out our Opportunity Zones landing page for the latest information about the program. Also, be on the lookout for a soon-to-be-published tool we have created to replace our earlier Opportunity Zones classification map.
The updated mapping tool will:
- Reflect the more inclusive set of eligibility criteria discussed in this post.
- Use the most current data to determine eligibility and allow users to download the data.
- Provide additional functionality to overlay federal program data to assist with designation strategies.
Determining Eligibility from Census Data: Which Year to Use?
With the guidance released on February 8, 2018, the IRS has clarified two important issues regarding the data that states should be using to designate Opportunity Zones – which tracts are eligible for designation and how many can be designated.
First, the IRS stated that Opportunity Zone designations made on the basis of 2015 5 Year American Community Survey (2015 ACS) data will be accepted using a “safe harbor” rule – meaning that the designations will not be rejected on the grounds that it is no longer eligible under more recent census data. On the other hand, they will consider a designation made on the basis of 2016 5 Year American Community Survey (2016 ACS) to be valid, as long as it is supported with the appropriate data.
In practice, this means that states can effectively use both 2015 and 2016 ACS data as a basis for designating Opportunity Zones. States could even choose to justify some tracts using 2015 ACS data and others using 2016 ACS data.
This also adds some additional complexity when dealing with contiguous tracts. For example, the current guidance appears to allow states to qualify a tract that is (1) contiguous to a Low-Income Communities eligible only on the basis of 2015 data, but (2) only passes the median family income test with 2016 data. In practice these cases may be rare, but it may be worthy of consideration in some situations.
The mapping we will be releasing in the coming days is currently being reworked to reflect this additional complexity and flexibility in designating tracts.
How Many Tracts Can States Designate?
In addition to the guidance above, the IRS stated that the total number of Opportunity Zones that states can designate must be based only on the 2015 ACS. So, while choosing to work with the 2016 ACS data can add some additional flexibility in which tracts are eligible, it will not affect the total number of tracts that can be designated.
The IRS guidance also specifies that states should round up when calculating the number of tracts to designate and the number of designated tracts that are eligible due to contiguity with Low-Income Communities. For example, a state with 101 Low-Income Communities would be able to designate 26 tracts (or 25 percent, rounded up) as Opportunity Zones. Of those 26 communities, up to two tracts (5 percent rounded up) could be designated as eligible based on contiguity with a Low-Income Community.